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Global Stocks Slide on Coronavirus Fears

Stocks and crude oil tumbled Monday on concerns about a dangerous viral outbreak in China, as the detection of infected patients in the U.S., Australia and France led to escalating concerns about its containment and potential economic impact.

Futures linked to the Dow Jones Industrial Average index dropped 1.5%. In Europe, the Stoxx Europe 600 retreated 2.1%, led by declines in the U.K. and France. The Chinese yuan slumped 0.8% against the dollar in offshore trading and the Australian dollar declined 0.7%.

The coronavirus has infected more than 2,700 people and killed at least 80, mostly in China’s Hubei province, prompting Beijing to extend the annual Lunar New Year holiday by two days to Feb. 2 to contain the disease. Chinese public-health officials warned on Sunday that the virus is growing more contagious. The total number of U.S. cases rose to five amid State Department officials’ efforts to evacuate American citizens from the epicenter of the outbreak.

“It’s unclear how far it could have potentially spread,” said Georgina Taylor, a multiasset fund manager at Invesco. “If it turns into a global health issue, that’s really the next piece of information that would worry us.”

U.S. stocks are poised for swings in trading as the Cboe Volatility Index, or VIX, which measures expected moves in the S&P 500 index, climbing to its highest level since the start of this year.

Markets in China, Hong Kong and South Korea were closed Monday for the public holiday. Japan’s Nikkei 225 index closed down 2%.

Oil prices slumped by the most in over four months as the virus outbreak threatens to damp economic growth in China, the world’s biggest energy consumer. Brent crude, the global benchmark, declined 3.4% and traded at $57.86 a barrel.

Russia’s ruble also lost 0.8% against the dollar, as falling oil prices reduced the energy exporter’s income. Norway’s krone is also declining, edging down 0.5% against the euro.

Jordan Rochester, an FX strategist at Nomura blamed the oil coefficient. “All the oil currencies are suffering this morning. That’s typically the ruble in emerging markets, and in the G-10, Canada and Norway.”

The yield on Italy’s benchmark 10-year government bond dropped as much as 19.7 basis points to 1.033% after Sunday’s regional elections resulted in a win for the centre-left Democratic Party in the Emilia Romagna and Calabria areas. The nationalist League party is losing support in Italy, reducing the country’s political risk. Italy’s bonds are trading closer to Germany’s benchmark bunds, with the spread between the two tightening over 10 basis points.

“Had the League been successful, they would have been able to claim that the balance of power within public opinion has shifted, it could have had an effect of weakening the government position,” said Luca Cazzulani, a senior fixed income strategist at UniCredit. The regional election result “reduced concerns that Italy could end up having snap elections in the coming months, that’s why the market is reacting positively.”
Source: Dow Jones

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